Australian banks

MacroBusiness covers Australian banks from the perspective of their macro-economic role, as political economy actors, as investment propositions and in terms of financial stability and capital adequacy. Australian banks have played a crucial role in inflating the Australian property bubble, exist within an utterly privileged position as “too big to fail” institutions and operate within a deeply distorted financial architecture that has Australian tax payers well and truly on the hook in the event of trouble. MacroBusiness seeks to define this role for investors as well as change it in the name of the Australian national interest.


The RBA readies its bank bailout mechanism

From Banking Day: The Australian Prudential Regulation Authority has released details of Committed Liquidity Facility arrangements between authorised deposit-taking institutions and the Reserve Bank, which form part of the new liquidity coverage ratio regime. APRA has estimated that the 13 ADIs covered by the LCR rule would suffer a cash outflow of more than A$400


Australian bank funding costs ease

From the SMH: Credit default swap spreads have now jumped by almost 55 per cent since late July, when contracts traded hands for under 60 basis points, and almost 30 per cent from mid-September. …Australia’s banks have already raised $16 billion of equity this year to strengthen their balance sheets, but more recently APRA has signalled some concern


Bank funding costs hit afterburners

Oh yes, it’s awwn. The CBA CDS price added another 5% Friday to finish at 95.34 and is now travelling impressively through into the middle atmospheres: Wider spreads are now showing up in the RMBS markets as well. In May this year Westpac paid 80bps on the top tranche of a $2.1 billion issue. In June Bendigo and Adelaide Bank


Australian bank funding costs launch

Everything is awesome today as CBA CDS launches to a new 2015 high at 91bps: Of course it’s still early days. Although net interest margins will begin to be squeezed over time funding costs do not become critical until they get above about 120bps which is where non-bank lenders become unecomomic. Banks are a little


John Fraser is a prick

From the AFR comes Treasury Secretary John Fraser: Fraser is treading cautiously and is self-deprecating about his role, yet associates say he’s already been quite rigorous in stamping his authority on the Treasury. Colleagues say he is tough, focused and demanding. “He doesn’t suffer fools,” one official says. “He can be pretty brutal with what


How to find a high yield

From Miranda Maxwell: …portfolio managers are increasingly warning against being lured by these dividend “traps”, which often don’t reflect the fundamentals of individual businesses and overall industries. While steadily falling share prices artificially inflate the yield, this risks a loss of capital if the price of the security falls further. The banks and supermarket owners,


To short or go long the banks, that is the question!

From Goldman Sachs: Tracking recent sector performance: Since the beginning of August, Australian banks are down 13.9% and have underperformed the ASX200 by 2.9%. As a result, the premium to fundamental valuations (and historical averages), which the sector has enjoyed on many measures since 2013, has more than dissipated. Valuation drivers still intact, in our view: We


APRA confronts its dumbest bubble

From the AFR: Australian banks have a funding problem and will need to work on shifting their deposit bases and lengthening their maturity profiles, the Australian Prudential Regulation Authority has warned. APRA chairman Wayne Byres said the funding profile of authorised deposit-taking institutions had improved since the financial crisis but the strengthening of liquidity profiles


Chris Joye: Abbott wrong to drop deposits tax

By Leith van Onselen The AFR’s Chris Joye has slammed the Abbott Government’s decision to drop the bank deposits tax, claiming that it is at odds with moves internationally and embeds moral hazard into Australia’s banking system: So let me get this straight. After the four peak government agencies that oversee Australia’s financial system recommended


How APRA has changed investors’ ability to borrow

By Redom Syed, republished with permission from Property Chat: Last week the APRA chairman delivered a telling speech about the future of the lending market in Australia. The speech was the best public indication yet of what APRA is thinking, what they have done and what they’re likely to do next. Importantly, they also provided


Our financial regulators are captured

By Leith van Onselen Wayne Byres, Chairman of APRA, presented a speech on Wednesday entitled “Banking On Housing“, whereby he outlined the current state of play with regards to the supervision of housing lending. Byres began by noting that Australia’s banks are overly concentrated in housing lending: The Australian banking system is noteworthy for the


Bank property exposures jumped in June

By Martin North, cross-posted from the Digital Finance Analytics Blog: APRA released their latest quarterly ADI property exposure data today. The publication contains information on ADIs’ commercial property exposures, residential property exposures and new housing loan approvals. Detailed statistics on residential property exposures and new housing loan approvals are included for ADIs with greater than


Australian bank funding costs breakout on EM jitters

And here comes the next Australian domino. As the global fixed interest market turns uber-bullish, Fed rate cuts are at best postponed and Australian sovereign bonds rally like nobody’s business, Australian bank bonds are going the other way, watching yields climb. The CBA CDS price jumped 7.5% on Friday to 78.5bps its highest level in


ASIC finds widespread interest-only rorting

Cross-posted from Martin North. ASIC today released a report that found lenders providing interest-only mortgages need to lift their standards to meet important consumer protection laws. They identified a number of issues relating to bank underwriting practices. We would also make the point that despite the low losses on interest-only loans to date in Australia,


QBELMI hit by macroprudential

From QBELMI: “We have revised our FY15 gross written premium expectations down by around five per cent or $200 million,” QBE’s chief executive of Australia & New Zealand operations Colin Fagen said. “This is due to the delayed inception of the aforementioned new business opportunities, an industry-wide downturn in lenders’ mortgage insurance new business volumes,


Australia’s mortgage black spot

From Fairfax: …In its 40 hotspots, NAB is conducting a more stringent assessment of loan applications, including increasing the amount of equity that borrowers require. NAB would not disclose what postcodes are on its watchlist. But Martin North, principal at Digital Finance Analytics…said postcodes in NSW that banks would be wary about include Blackville, Caroona, Colly Blue, Pine Ridge, Quirindi,


Joye joins queue to take money from Sykes

Chris Joye did some bank stress testing on Friday after Trevor Sykes’ recent sell at the paper: A simple stress-test is to imagine that non-residential loan losses reach, say, two-thirds of their 1991 marks coupled with a rise in residential arrears to, say, 2 per cent (compared to 0.6 per cent presently) with 30 per


Westpac tightens on interest-only loans

More incremental tightening today from Westpac, via the AFR: Westpac is tightening credit policies for interest-only mortgages, an area where financial regulators have raised concerns about bank underwriting standards. The country’s biggest lender to landlords last week told brokers of changes requiring new interest-only borrowers to be tested against their ability to make principal, and


CBA unveils its pump and hike strategy

From CBA CEO Ian Narev via the AFR: With the Reserve Bank of Australia previously branding the current investor-led surge in house prices “unbalanced” and governor Glenn Stevens describing Sydney’s market as “crazy”, Mr Narev said actions from the Australian Prudential Regulation Authority to cap the lending growth to housing investors would in the short


How to take money from Trevor Sykes

The AFR has rolled out its biggest gun of all, the legend Trevor Sykes, to defend the banks: Broadly, all the Big Four enjoyed a run from 2011 until early this year, but since then they have slid quite abruptly. There were two reasons for the fall. The first was that the Australian Prudential Regulation


CBA bad debts begin to climb

From Watermark via Fairfax: Cash earnings grew by 5% for the full year but declined by 2% in the second half. Cash earnings and underlying profits were all in-line with consensus expectations for both the second half and full year. CBA experienced flat jaws [move in revenue v costs] on a full year basis but negative


CBA in $5 billion rights issue

From Domainfax: Commonwealth Bank chiefs have signed off on a plan to go to the market with a $5 billion capital raising on Wednesday, according to reports. Designed to plug a potential capital shortfall of up to $10 billion brought on by tougher new banking regulations due in 2016, the plan for a rights issue was signed